Country-Level corporate governance and Foreign Portfolio Investments in Sub-Saharan Africa: The moderating role of institutional quality

Figures & data

Table 1. Variables, measurement and sources

Variable	Symbol	Measurement	Source
Foreign Portfolio Investments	FPI	Net inflows	IMF
Ethical Behaviour of Firms	EB	“In your country, how do you rate the corporate ethics of companies on a scale of 1 to 7?”	World Economic Forum (WEF)
Efficacy of Corporate Boards	ECB	“In your country, to what extent is management accountable to investors and boards of directors?”	WEF
Strength of Auditing and Reporting Standards	SARS	“In your country, how strong are financial auditing and reporting standards?”	WEF
Protection of Minority Shareholders’ Interests	POMI	“In your country, to what extent are the interests of minority shareholders protected by the legal system?”	WEF
Regulation of Securities Exchanges	RESE	“In your country, to what extent do regulators ensure the stability of the financial market on a scale of 1–7?”	WEF
Country-level Corporate Governance	CG	Simple average of the five governance indicators	Author’s computation
Institutional Structures	INST	Simple average of the Six World Governance Indicators	Author’s computation
Market size		Real GDP	World Development Indicators (WDI)
Natural Resource Endowment	Natr	Natural resource rent as % of GDP	WDI
Trade openness	TRADE	Total exports and imports as a % of GDP	WDI
Financial Development	FD	Domestic credit to private sector	WDI
Inflation	INF	Annual CPI	WDI
Exchange rate	ER	Official exchange rate of local currency per US$	WDI

Table 2. Descriptive statistics

Variable	Obs	Mean	Median	SD	Min	Max
FPI	308	$4.285 M	$1.59 M	$1.722 M	0	$9.959B
CG	246	4.184	4.061	.674	2.675	6.376
ECB	278	4.502	4.549	.572	2.337	6.122
SARS	278	4.225	4.122	.838	2.134	6.727
EB	278	3.750	3.709	.574	2.378	5.283
POMI	278	4.104	4.077	.674	1.998	6.222
RESE	278	3.738	3.826	.94	1.172	6.558
INST	314	35.104	32.539	17.889	5.387	76.923
GDP	315	$40.58B	$12.52B	$91.21B	$847.4 M	$568.5B
ER	306	774.376	149.589	1521.114	1.405	9088.319
INF	314	5.986	5.551	7.354	−60.496	32.378
FD	286	25.343	17.044	28.145	2.66	150.974
TRADE	313	75.350	65.343	33.847	20.723	225.023
Natr	315	11.318	8.719	9.349	.001	53.625

Note. FPI is foreign portfolio investment, CG is country-level CG, ECB is the efficacy of corporate boards, SARS is the strength of auditing and reporting standards, EB is ethical behaviour of firms, POMI is the protection of minority shareholders’ interests, RESE is regulation of securities and exchanges, INST is institutional quality, GDP is Gross Domestic Product, ER is the exchange rate, INF is inflation, FD is financial development, TRADE is trade openness, Natr is Natural resource endowment. Variable names apply to all abbreviations throughout the text.

Table 3. Correlation matrix

	LFPI	L.LFPI	ECB	SARS	EB	POMI	RESE	INST	LGDP	ER	INF	FD	TRADE	NatR
LFPI	1.000
L.LFPI	0.916*	1.000
ECB	0.393*	0.379*	1.000
SARS	0.474*	0.471*	0.758*	1.000
EB	0.243*	0.279*	0.656*	0.727*	1.000
POMI	0.400*	0.430*	0.733*	0.829*	0.742*	1.000
RESE	0.547*	0.557*	0.748*	0.860*	0.693*	0.817*	1.000
INST	0.292*	0.299*	0.458*	0.526*	0.570*	0.584*	0.531*	1.000
LGDP	0.542*	0.534*	0.183*	0.208*	−0.076	0.211*	0.335*	0.037*	1.000
ER	−0.294*	−0.302*	−0.017	−0.248*	−0.242*	−0.346*	−0.276*	−0.306*	−0.103*	1.000
INF	0.009	0.019	0.103	0.085	−0.015	0.072	0.121*	−0.047	0.040	0.140*	1.000
FD	0.511*	0.508*	0.425*	0.598*	0.411*	0.561*	0.610*	0.437*	0.297*	−0.259*	−0.134*	1.000
TRADE	0.016	−0.006	−0.149*	0.045	0.101	−0.009	0.007	0.262*	−0.468*	−0.141*	−0.064	0.102	1.000
Natr	−0.064	−0.079	−0.389*	−0.459*	−0.439*	−0.399*	−0.477*	−0.455*	0.055	0.210*	0.048	−0.339*	−0.006	1.000

*Significance at 5%.

Table 4. Results on country-level CG, institutional quality and FPI

	Model 1	Model 2	Model 3	Model 4	Model 5	Model 6
	SARS	ECB	EB	POMI	RESE	CG
L.LFPIn	0.757***	0.727***	0.700***	0.777***	0.726***	0.733***
	(0.0378)	(0.0359)	(0.0464)	(0.0317)	(0.0333)	(0.0365)
SARS	0.142*
	(0.0832)
ECB		0.224**
		(0.0942)
EB			0.440**
			(0.1830)
POMI				−0.360***
				(0.0801)
RESE					0.287***
					(0.0682)
CG						0.277*
						(0.141)
INST	−0.0021	0.0061	0.0019	0.0218*	0.0037	0.0023
	(0.0087)	(0.0065)	(0.0046)	(0.0112)	(0.0085)	(0.0077)
Controls
LGDP	0.854***	0.580***	0.874***	0.687***	0.540***	0.686***
	(0.120)	(0.0971)	(0.131)	(0.128)	(0.124)	(0.0959)
ER	0.0022	−0.0066**	0.0042	−0.0029	−0.0005	−0.0010
	(0.0027)	(0.0025)	(0.0030)	(0.0033)	(0.0022)	(0.0020)
INF	0.0190	0.0145	0.0191	0.0216**	0.00382	0.0106
	(0.0116)	(0.0121)	(0.0134)	(0.00907)	(0.0117)	(0.0123)
FD	0.0139*	−0.0044	0.0171**	0.0016	−0.0080	−0.0028
	(0.0075)	(0.0075)	(0.0082)	(0.089)	(0.0606)	(0.0070)
TRADE	0.0183***	0.0105**	0.0110	0.0122**	0.0150**	0.0183***
	(0.0057)	(0.0048)	(0.0070)	(0.0049)	(0.0062)	(0.0046)
Natr	0.0084	−0.0112	0.0003	0.0125	0.0029	−0.0138
	(0.0099)	(0.0138)	(0.0153)	(0.0116)	(0.0122)	(0.0125)
_cons	−20.64***	−13.47***	−21.46***	−15.01***	−13.03***	−16.52***
	(3.031)	(2.457)	(3.277)	(3.365)	(3.249)	(2.403)
Year Dummies	Yes	Yes	Yes	Yes	Yes	Yes
Mean VIF	1.87	1.76	1.76	1.93	1.90	2.19
AR1	0.024	0.032	0.029	0.020	0.033	0.030
AR2	0.141	0.187	0.235	0.115	0.144	0.161
Sargan OIR	0.538	0.265	0.397	0.527	0.477	0.476
Hansen OIR	0.383	0.252	0.242	0.424	0.196	0.267
DHT for instruments
(a) Instruments in levels
H excluding group	0.536	0.713	0.810	0.862	0.421	0.459
Diff(null, H = exogenous)	0.302	0.129	0.101	0.207	0.160	0.217
(b)IV(years, eq(diff)
H excluding group	0.365	0.349	0.203	0.430	0.240	0.331
Diff(null, H = exogenous)	0.386	0.083	0.663	0.287	0.137	0.126
Fisher	422.48***	560.96***	451.92***	362.13***	264.79***	253.86***
Instruments	30	30	30	30	30	30
Countries	33	33	33	33	33	33
Observations	213	213	213	213	213	213

Standard errors in parenthesis; ***, ** and * represent 1%, 5% and 10% significance levels.

Table 5. Moderating role of institutional quality

	Model 7	Model 8	Model 9	Model 10	Model 11	Model 12
	SARS	ECB	EB	POMI	RESE	CG
L.LFPI	0.787***	0.765***	0.786***	0.711***	0.729***	0.718***
	(0.0406)	(0.0701)	(0.0698)	(0.0375)	(0.0390)	(0.0346)
SARS	1.584***
	(0.212)
ECB		1.037***
		(0.340)
EB			1.579*
			(0.828)
POMI				−1.514**
				(0.519)
RESE					1.073***
					(0.155)
CG						1.366***
						(0.364)
INST	0.152***	0.0585	0.166**	−0.0764	0.0958***	0.108**
	(0.0322)	(0.0440)	(0.0792)	(0.0496)	(0.0258)	(0.0421)
SARSINST	−0.0391***
	(0.0077)
ECBINST		−0.0123
		(0.0099)
EBINST			−0.0467**
			(0.0214)
POMIINST				0.0250
				(0.0129)
RESEINST					−0.0245***
					(0.0066)
CGINST						−0.0292***
						(0.0105)
Net Effects	3.1279	1.8207	3.0382	−0.7800	1.3427	2.2784
Controls
LGDP	0.610***	0.764***	0.670**	0.812***	0.491***	0.601***
	(0.130)	(0.157)	(0.329)	(0.189)	(0.136)	(0.130)
ER	−0.0033	−0.0035	−0.0018*	−0.0076	−0.0002	−0.0035
	(0.0039)	(0.0037)	(0.0009)	(0.0058)	(0.0003)	(0.0033)
INF	−0.0060	−0.0074	0.0142	0.0026	−0.0218	−0.0048
	(0.0119)	(0.0160)	(0.0245)	(0.0303)	(0.0132)	(0.0135)
FD	0.0134**	0.0039	−0.0137	0.0215	0.0040	0.0070
	(0.0051)	(0.0115)	(0.0158)	(0.0130)	(0.0055)	(0.0065)
TRADE	0.0245***	0.0135	0.0112	−0.00638	0.0128	0.0145**
	(0.0063)	(0.0115)	(0.0121)	(0.0105)	(0.0088)	(0.0056)
Natr	0.0212**	0.0210	−0.0130	0.0462*	0.0135	−0.0061
	(0.0101)	(0.0145)	(0.0264)	(0.0243)	(0.0106)	(0.0102)
_cons	−20.90***	−22.08***	−19.74**	−12.50*	−14.54***	−18.15***
	(3.362)	(3.480)	(5.877)	(4.786)	(3.505)	(2.591)
Year Dummies	Yes	Yes	Yes	Yes	Yes	Yes
AR1	0.023	0.036	0.025	0.019	0.037	0.036
AR2	0.206	0.294	0.260	0.196	0.178	0.242
Sargan OIR	0.812	0.358	0.099	0.379	0.635	0.537
Hansen OIR	0.414	0.238	0.563	0.580	0.392	0.419
DHT for instruments
(a) Instruments in levels
H excluding group	0.436	0.656	0.890	0.544	0.377	0.322
Diff(null, H = exogenous)	0.389	0.154	0.474	0.516	0.398	0.468
IV(years, eq(diff)
H excluding group	0.360	0.185	0.552	0.526	0.418	0.433
Diff(null, H = exogenous)	0.702	0.937	0.357	0.595	0.227	0.263
Instruments	30	30	30	30	30	30
Fisher	291.33***	293.78***	78.98***	221.64***	868.73***	314.54***
Countries	33	33	33	33	33	33
N	213	213	213	213	213	213

***, ** and * represent 1%, 5% and 10% significance levels; standard errors in parenthesis

Table

Country	Average INST	Net Effects: ${\mathit{\beta }}_2+{\mathit{\beta }}_4\ast \mathit{I}NST$
		SARS	ECB	EB	POMI	RESE	CG
Angola	15.1255	3.4280	−0.7780	3.3435	−0.7780	1.6145	2.5626
Benin	39.7440	3.0858	−0.7780	3.0064	−0.7780	1.3018	2.2330
Botswana	72.2335	2.9338	−0.7780	2.8844	−0.7780	1.0945	2.0409
Burkina Faso	38.0896	3.0999	−0.7780	3.0189	−0.7780	1.3174	2.2485
Burundi	13.2696	3.4696	−0.7780	3.3882	−0.7780	1.6466	2.5984
Cabo Verde	18.2465	3.3644	−0.7780	3.2766	−0.7780	1.5637	2.5066
Cameroon	66.3283	2.9491	−0.7780	2.8953	−0.7780	1.1210	2.0638
Chad	8.7399	3.5849	−0.7780	3.5150	−0.7780	1.7314	2.6944
Cote d’Ivoire	21.9007	3.2991	−0.7780	3.2097	−0.7780	1.5089	2.4472
Ethiopia	22.7039	3.2860	−0.7780	3.1965	−0.7780	1.4975	2.4349
Gabon	30.9075	3.1731	−0.7780	3.0862	−0.7780	1.3931	2.3252
Gambia, The	31.3061	3.1684	−0.7780	3.0819	−0.7780	1.3885	2.3205
Ghana	54.1383	2.9948	−0.7780	2.9299	−0.7780	1.1896	2.1254
Guinea	13.9663	3.4536	−0.7780	3.3709	−0.7780	1.6344	2.5847
Kenya	29.5793	3.1890	−0.7780	3.1013	−0.7780	1.4086	2.3412
Lesotho	46.2057	3.0386	−0.7780	2.9657	−0.7780	1.2465	2.1791
Liberia	23.2716	3.2770	−0.7780	3.1874	−0.7780	1.4896	2.4265
Madagascar	25.7125	3.2403	−0.7780	3.1516	−0.7780	1.4567	2.3916
Malawi	37.9165	3.1015	−0.7780	3.0203	−0.7780	1.3191	2.2501
Mali	28.6008	3.2012	−0.7780	3.1131	−0.7780	1.4204	2.3535
Mauritania	21.9071	3.2990	−0.7780	3.2096	−0.7780	1.5088	2.4471
Mauritius	75.2917	2.9271	−0.7780	2.8798	−0.7780	1.0822	2.0306
Mozambique	33.3748	3.1456	−0.7780	3.0605	−0.7780	1.3656	2.2970
Namibia	62.0104	2.9629	−0.7780	2.9053	−0.7780	1.1430	2.0832
Nigeria	16.5751	3.3975	−0.7780	3.3112	−0.7780	1.5904	2.5360
Rwanda	46.9223	3.0341	−0.7780	2.9619	−0.7780	1.2409	2.1737
Senegal	44.8863	3.0473	−0.7780	2.9730	−0.7780	1.2571	2.1893
Seychelles	59.2964	2.9728	−0.7780	2.9128	−0.7780	1.1581	2.0967
Sierra Leone	25.5687	3.2424	−0.7780	3.1531	−0.7780	1.4586	2.3936
South Africa	59.1150	2.9735	−0.7780	2.9133	−0.7780	1.1591	2.0976
Swaziland	33.4104	3.1452	−0.7780	3.0602	−0.7780	1.3652	2.2966
Tanzania	35.9762	3.1194	−0.7780	3.0365	−0.7780	1.3383	2.2694
Uganda	31.6023	3.1651	−0.7780	3.0787	−0.7780	1.3852	2.3170
Zambia	40.2556	3.0816	−0.7780	3.0027	−0.7780	1.2971	2.2283
Zimbabwe	8.5716	3.5896	−0.7780	3.5202	−0.7780	1.73472	2.6982